An extreme (and unsuccessful) effort to contort policylanguage
Although courts are often willing to rule, on slim or nebulousarguments, against insurers and in favor of insureds, the followingdecision of the District Court for the Eastern District ofPennsylvania proves the exception to the rule. It shows that courtswill follow insurance policies that are clear and unambiguous,regardless of the imaginative theories posed by theinsured.

This case is also important to every agent and broker,especially those in Pennsylvania, because it establishes that thereis no obligation imposed on an insurer, agent or broker to inspectand determine the exact replacement value of an insured'shome.
A couple had an insurance policy on their home that covered thedwelling for $1,561,000 and the contents for $1,293,289. In 2003,they switched coverage to a different insurance company. Theynegotiated the policy through their insurance broker, who suggestedthat the existing limits be retained. Rather than conduct its ownappraisal, the new insurer accepted those limits. In November 2004,the couple renewed the policy and increased the limits to$1,639,050 for the dwelling and $1,358,773 for the contents.
In June 2005, the couple's house was destroyed by a fire.Subsequently, the couple submitted claims to their insurer throughtheir public adjuster. Under the policy, the couple was entitled tothe amount it would cost to rebuild the home at the same location,which was called “guaranteed rebuilding cost” coverage in thepolicy. If they rebuilt elsewhere, the most they were entitled towas the policy limit.
Believing that the couple was going to rebuild at the samelocation, the insurer adjusted the loss and prepared an initialestimate of the reconstruction cost. The couple disagreed with theinsurer's initial appraisal and hired their own contractor toprepare an estimate. When the parties could not agree on anestimate, they submitted the dispute to an appraisal process, asper the terms of the policy.
Meanwhile, the couple built a new home for themselves in a nearbytown. They also received permission to subdivide their old propertyinto three lots, on which they later built three new houses tosell.
The appraisal found that the cost to repair or replace the couple'shome was $2,916,900. However, the insurer refused to pay theappraisal amount because the couple did not rebuild their home atthe same location. Instead, it paid the couple the $1,639,050dwelling limit and the $1,358,773 contents limit.
The couple sued the insurer for breach of contract, maintainingthat they did rebuild at the same location and thus were entitledto the $2,916,900 guaranteed rebuilding cost coverage. They alsoalleged that their coverage limit did not adequately insure theirproperty, and that the insurer breached its obligation to conduct apre-loss valuation that would have resulted in higher policylimits.
The court first considered the couple's claim that they hadcomplied with their policy's “same location” condition and thuswere entitled to the guaranteed rebuilding cost coverage. Citinganother opinion, the court noted that when interpreting aninsurance policy, “the words of the insurance policy must beconstrued in their natural, plain, and ordinary sense.” It thenproceeded to dismiss the couple's claim.
While the court agreed with the plaintiffs that the terms were notdefined in the policy, it still found them clear enough. “As thisCourt has previously noted, 'the failure to define a term shouldnot send the Court scurrying to a dictionary hunting forambiguity.' … Yet Plaintiffs ask this Court to scurry to newheights.”
In looking at the policy as a whole, the court found that the term“same location” is not ambiguous. It noted that throughout thepolicy, “location” referred to the specific address of theplaintiffs' destroyed home.
“It is beyond reason,” the court said, “that 'location' is used toindicate 'address' throughout the (policy), but when 'same' isplaced in front of it, its meaning expands to an undefined andundefinable degree. … It is common knowledge that when an insuredpurchases homeowners insurance, he buys coverage for his individualproperties, not for a broad, undefined expanse of miles of spaceover which he has no ownership. Plaintiffs' argument fails becauseit contains no limiting principle: if 'same location' can encompasstwo separate addresses because they are similar and alike in kind,then the fact that Plaintiffs' properties are five minutes apart isirrelevant; indeed, there are arguably properties in greaterDelaware County, or in all of Pennsylvania, or even the entireUnited States, that may well be more similar and alike in kind than(the address of the plaintiffs' new home).”
In short, the court said that since the plaintiffs chose not torebuild on the property where their house burned down, they werenot entitled to guaranteed rebuilding cost coverage.
As an alternative argument, the couple claimed that by subdividingtheir old property and building three new homes on it, they“rebuilt” their “house” at the “same location,” triggering theirpolicy's guaranteed rebuilding cost provision.
The court found that under that provision, “'reconstruction cost'is limited to 'the lesser of the amount at the time of the lossrequired to (a) restore or repair a structure; or (b) replace orrebuild a structure at the same location; with materials of likekind and quality.'”
“Plaintiffs' argument that developing their former property intothree new properties is synonymous with replacing or rebuildingtheir destroyed house stretches beyond the bounds of reason andclearly falls beyond the (policy's) intended scope,” the courtsaid. “It is simply implausible that any reasonable fact findercould construe the plain meaning of 'materials of like kind andquality' to include those materials necessary to construct threeseparate homes where there was once one.”
The court added that while the plaintiffs were free to developtheir old property as they saw fit, “their insurance policy servedto compensate them for their covered loss, not to provide a blankcheck to fund their future development projects.”
The court also considered the plaintiffs' charge that their insurerbreached a contractual obligation by failing to conduct a pre-losshome valuation, and that had the insurer done so their destroyedproperty would have been insured for at least $1.2 million morethan it was. In support of their position, the plaintiffs pointedto a lone sentence in their policy: “We may change the amount ofcoverage shown on the Declarations Page when the policy renews orwhen appraisals are conducted to reflect current costs andvalues.”
The court, however, found no obligation to conduct a valuation inthat sentence. “The plain meaning of the terms 'we may change' and'when appraisals are conducted' suggests only one reasonableinterpretation: that Defendant reserves the right to conductappraisals and may change the amount of coverage, not thatDefendant affirmatively assumes an obligation to do so.” The courtlater added that the sentence “contains no language mandating anappraisal at any time, and certainly not at the implementation ofthe policy.”
The court considered a number of other claims the plaintiffs made,dismissed them all and granted summary judgment to the defendantinsurer.
Scardino v. American International Insurance Co., No. 07-282(E.D.Pa. 11/02/2007). Barry Zalma, Esq., CFE, is aCalifornia attorney. His practice emphasizes the representation ofinsurers and others in the business of insurance. He founded ZalmaInsurance Consultants in 2001 and serves as its senior consultant.He provides expert witness testimony and consults with plaintiffsand defendants concerning insurance coverage, insurance claimshandling and bad faith. He has qualified as an expert in state andfederal courts in California, Mississippi, Texas and New Mexico, aswell as in the Grand Caymans. He can be reached at [email protected]. Hisconsulting practice's Web site is www.zic.bz.